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Gov Uscourts Nysd 501755 80 0
Gov Uscourts Nysd 501755 80 0
Gov Uscourts Nysd 501755 80 0
Plaintiff,
v. Civil Action No. 1:18-cv-08865-AJN
ELON MUSK,
Defendant.
TABLE OF CONTENTS
I. INTRODUCTION...................................................................................................... 1
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TABLE OF AUTHORITIES
Page
CASES
Blum v. Yaretsky,
457 U.S. 991 (1982).......................................................................................................... 7
Citadel Broad. Co.,
Mem. Op. and Order, 17 F.C.C. Rcd 483 (2002) ................................................................. 9
Crosby v. Bradstreet,
312 F.2d 483 (2d. Cir. 1963) ......................................................................................... 1, 8
Exxon Mobil Corp. v. Schneiderman,
316 F. Supp. 3d 679 (S.D.N.Y. 2018) ................................................................................ 3
Grenda v. S.E.C.,
2017 WL 4053821 (W.D.N.Y. Sept. 14, 2017)............................................................... 2, 6
Hampton v. S.E.C.,
2018 WL 4853902 (D.D.C. Oct. 5, 2018) .......................................................................... 2
In re Consol. Pretrial Proc. in Air W. Sec. Litig.,
436 F. Supp. 1281 (N.D. Cal. 1977)................................................................................... 9
In re Marriage of Baltins,
212 Cal. App. 3d 66 (Ct. App. 1989) ................................................................................. 9
In re Zarnel,
619 F.3d 156 (2d Cir. 2010) .............................................................................................. 8
In the Matter of Nikola Corp.,
Release No. 93838 (Dec. 21, 2021) .................................................................................... 5
Krantz v. BT Visual Images, L.L.C.,
89 Cal. App. 4th 164 (2001) .............................................................................................. 9
Lerman v. S.E.C.,
928 F. Supp. 2d 798 (S.D.N.Y. 2013) ................................................................................ 2
Lugar v. Edmondson Oil Co., Inc.,
457 U.S. 922 (1982).......................................................................................................... 7
Rich & Whillock, Inc. v. Ashton Dev., Inc.,
157 Cal. App. 3d 1154 (Ct. App. 1984).............................................................................. 9
RNR Enters., Inc. v. S.E.C.,
122 F.3d 93 (2d Cir. 1997) ................................................................................................ 3
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S.E.C. v. Romeril,
15 F.4th 166 (2d Cir. 2021) ........................................................................................... 7, 8
United States v. Constr. Prod. Rsch., Inc.,
73 F.3d 464 (2d Cir. 1996) ................................................................................................ 3
RULES
Guidance on the Use of Company Web Sites,
73 Fed. Reg. 45862-01, 45873 (Aug. 1, 2008)..................................................................... 5
SEC Release No. 33-8124, Certification of Disclosure in Companies’ Quarterly and
Annual Reports (2002)....................................................................................................... 4
OTHER AUTHORITIES
Eminem, “Without Me” (2002) ................................................................................................ 8
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I. INTRODUCTION
The SEC argues that it has unfettered authority to subpoena whatever it wants, whenever
it wants, so long as it obtains a formal order. But the SEC’s investigatory power has limits,
especially once, as here, it is leveraging a binding order specially entered and superintended by
this Court. The SEC seeks to justify its misconduct by relying on Rule 13a-15—a circumscribed
rule that does not govern the conduct it is investigating: Mr. Musk’s tweets. And the Second
Circuit’s binding precedent in Crosby v. Bradstreet Co., 312 F.2d 483 (2d Cir. 1963), requires
that the Court either terminate the consent decree or, at minimum, strike the constitutionally
contrary only seek to circumvent this Court’s authority and directly police Mr. Musk’s speech
without answering to the one tribunal uniquely positioned to adjudicate disputes between these
parties, over these issues. Dkt. No. 71 (“Mot.”) at 1–2; see also Dkt. No. 65 (providing Mr.
Musk may make a motion to quash). As this Court knows, the SEC entered into a bilateral,
ongoing consent decree that this Court approved and continues to superintend between the
parties. Thereafter, the SEC ran to this Court seeking relief when it believed that Mr. Musk did
not comply with Tesla’s disclosure controls, alleging a violation of the consent decree. See Dkt.
No. 18. Now, the SEC is telling the Court that it lacks jurisdiction over the same claim. The
In its response, the SEC glaringly omits that its subpoenas specifically cite “the final
judgment or amended final judgment in S.E.C v. Musk, 1:18-cv-8865-AJN (S.D.N.Y.)” and “the
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See Mot. at 3; see also infra at 3–4 (SEC’s misrepresentations of its subpoenas). Notably,
Mr. Musk has not asked this Court to quash the portions of the subpoena unrelated to the consent
decree. He merely seeks relief that this Court is specially situated to provide: supervision over a
party to a consent decree issued by this Court. The SEC should no more be able to dodge such
Further, the SEC provides no support for the jurisdictional bar it seeks to impose on pre -
enforcement challenges to SEC subpoenas. The cases cited by the Commission pertaining to
sovereign immunity are legally and factually inapposite. None involved the enforcement of a
court-ordered consent decree; rather, all involved complaints alleging affirmative claims for
abuse of process by the SEC and demanding declaratory and injunctive relief, as well as
monetary damages. Dkt. No. 78 (“Resp.”) at 5–6. Mr. Musk has not filed a complaint against
the SEC nor sought monetary damages, and there is no question of sovereign immunity because
the SEC voluntarily selected this Court as the forum for its suit when it could have filed an
administrative proceeding. The SEC also filed the joint request for this Court to retain
jurisdiction. Dkt. No. 13. Even outside the consent decree context, courts have considered
third-party rights are concerned, as here.1 See, e.g., Grenda v. S.E.C., 2017 WL 4053821, at *2
(W.D.N.Y. Sept. 14, 2017); Hampton v. S.E.C., 2018 WL 4853902, at *6 (D.D.C. Oct. 5, 2018);
Prudential concerns further support this Court’s exercise of jurisdiction. It makes little
sense to require that Mr. Musk “wait-and-see” if the SEC initiates a Section 78u(c) proceeding in
1 Mr. Musk is a party to the consent decree, but he is a third-party subpoena recipient.
2 Unless otherwise indicated, this brief omits from quotations and citations all internal
quotation marks, footnotes, and citations.
2
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in this Court or in another,3 and potentially litigate a venue transfer motion, all for this issue to be
re-briefed and decided in a posture substantively identical to the current one. See Exxon Mobil
Corp. v. Schneiderman, 316 F. Supp. 3d 679, 696 (S.D.N.Y. 2018) (declining to exercise
prudential ripeness doctrine and ruling on motion to quash pre-enforcement subpoena where
Rule 13a-15, and the judgment and amended judgment in this case to justify the Challenged
Requests. But those authorities are each specific and bounded, and none—together or apart—
supply the Commission the legitimate investigatory purpose required under law.
Requests. See, e.g., Resp. at 7; see also id. at 4–6, 9–10, 16. But the Formal Order is not itself
evidence of the legitimacy of the subpoena, no matter how many times the Commission notes its
existence. See Mot. at 8–9; United States v. Constr. Prod. Rsch., Inc., 73 F.3d 464, 471 (2d Cir.
1996) (rejecting idea that “an agency may conduct any investigation it may conjure up”); RNR
Enters., Inc. v. S.E.C., 122 F.3d 93, 97 (2d Cir. 1997) (inquiring whether the formal order
reflects a legitimate investigatory purpose). The Formal Order is not an open invitation for any
fishing expedition the Commission may wish to pursue, and the Commission errs in assuming
To that end, the SEC twice denies that “its subpoenas are issued under the consent
decree,” instead stating unequivocally “the subpoenas were issued under the authority granted by
3 When asked, the SEC would not commit to bring such an action before Your Honor.
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the Formal Order of Investigation.” Resp. at 5 n.2; see also id. at 16. To support that claim, the
SEC points out that the Musk and Tesla subpoenas “refer to” the Formal Order, and “do not bear
the caption for S.E.C v. Musk or S.E.C v. Tesla.” Resp. at 4. While it may be strictly true that
this case caption is not at the top of the Tesla subpoena, that subpoena twice asks for documents
related to compliance with “the final judgment or amended final judgment in SEC v. Musk, 1:18-
cv-8865-AJN (S.D.N.Y.).” Mot. at 3. It should suffice to note that the SEC is expressly trading
off consent-decree provisions that are presided over by the very same Court that the SEC is
claiming unfettered prerogatives to circumvent. Any such theory of this Court’s authority —by
2. Rule 13a-15 Does Not Give The SEC Unbridled License To Investigate
Any And All Executive Communications.
The SEC pairs recitations to the Formal Order with similarly unsupported reliance on
Rule 13a-15. The SEC has no authority for its naked assertion that a securities rule that governs
First, the SEC argues a point of first-impression, that to comply with the disclosure
controls and procedure requirements of Rule 13a-15, a company must pre-approve its
executives’ tweets. The SEC does not cite the Rule itself for this proposition; nor could it.
There is no support in law for the Commission’s propositions that (1) the rule requires pre -
tweet constitutes a disclosure similar to an 8-K, 10-K, or 10-Q filing. Mot. at 9–13.4 Even the
SEC’s guidance makes clear that only a narrow set of executive communications fall under the
4
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purview of a company’s Rule 13a-15 disclosure controls—namely, those that are required in an
Exchange Act report. See Commission’s Guidance on the Use of Company Web Sites, 73 Fed.
Reg. 45862-01, 45873-74 (Aug. 7, 2008) (listing examples of communications that may require
an Exchange Act report, such as company’s waiver of its code of ethics or board policy on
The SEC instead cites the Amended Judgment in this case, which requires pre-approval
of certain types of executive communications. Indeed, that is only further evidence that the SEC
seeks to investigate compliance with the consent decree, not Rule 13a-15. To the extent that the
Commission seeks to rely on the Complaint in S.E.C v. Tesla and In the Matter of Nikola Corp.,
Release No. 93838 (Dec. 21, 2021), those were settled matters that carry no precedential legal
value; the SEC’s theory that Rule 13a-15 covers tweets has never actually been resolved. In any
from the communication at issue here, a Twitter poll. See generally Mot. at 11, 13–14.
Second, the SEC argues that Tesla’s representations in its 10-Ks and 10-Qs provide basis
for investigation. The SEC overstates Tesla’s representations, see Mot. at 12–13, and again
attempts to blur the distinction between Rule 13a-15 and the consent decree. Rule 13a-15
requires that Tesla make certain disclosures in Commission filings. Distinctly, the consent
tweets, by Tesla’s securities counsel. After a tweet is published (pre-approved or not), the SEC’s
only germane concern under Rule 13a-15 should be whether obligatory information is disclosed.5
But nowhere in its brief does the SEC cite a single example of a communication (e.g., a tweet)
5 Under Rule 13a-15, the touchstone inquiry for whether a filing is necessary is
materiality. In contrast, the Amended Judgment does not contain a materiality requirement and
encompasses a broader category of information than what is covered under the Rule.
5
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by Mr. Musk that contained information that Tesla was required to separately disclose in a filing
with the Commission and did not—the crux of a Rule 13a-15 analysis.6 And the SEC does not
actually allege that the tweets it complains about independently violate securities laws. Instead,
the SEC has based its investigation on whether or not tweets were pre-approved—a question that
To the extent the SEC cites Grenda v. S.E.C. to suggest that it has the power to issue
settlement in an SEC administrative proceeding and therefore did not implicate the ongoing
supervisory authority of a federal court. Resp. at 10, 2017 WL 4053821, at *1. As discussed at
length in the principal brief, the SEC may not make an end-run around this Court’s supervision.
Mot. at 12–16.
Nor has the SEC actually cited any support for its contention that the consent decree
“require[s] Tesla to . . . ensure that Musk actually complies with—the company’s new mandatory
controls and procedures.” Resp. at 9. Tesla is in fact complying with its obligations to institute
disclosure controls. See Mot. at 13. That the Commission prefers to substitute its judgment for
that of the independent directors whom the SEC approved to monitor disclosure controls says
well-grounded claims of harassment. What the Commission calls “new instances of conduct . . .
6 See Tesla, Dkt. 3-1 ¶ 6(c) (requiring Tesla securities counsel to make appropriate SEC
filings following communications).
7See Tesla, Dkt. 3-1 ¶ 6(b) (requiring committee oversight of the judgment, “the charter
and composition of [which] is subject to review and approval by the staff of the Commission”).
6
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that could implicate the federal securities laws,” Resp. at 11, are nothing more than Mr. Musk’s
misrepresentations or fraud. Nor does the Commission address its leak of non -public
information about this investigation, which alone speaks volumes about the SEC’s bad faith
the Commission’s response to his motion. The SEC has advanced its investigations without
regard for Mr. Musk’s constitutional rights, the limits of its authority under Rule 13a-15, or the
Mr. Musk’s speech by arguing that an SEC-designed, court-enforced agreement involves no state
action merely because the Commission has deputized a Tesla securities lawyer to pre-approve
Mr. Musk’s tweets. But it is irrelevant whom the SEC has tasked with this duty; Mr. Musk’s
speech is restrained as a result of the SEC’s prosecution just the same. See Blum v. Yaretsky, 457
U.S. 991, 1004–05 (1982) (state action can be found where the state exercises coercive power on
the private actor, provides “significant encouragement”, or transfers into private hands
traditionally state powers); Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 937 (1982) (“[T]he
conduct allegedly causing the deprivation of a federal right [is] fairly attributable to the State.”).
Next, the SEC again oversteps by claiming that, just because Mr. Musk agreed to the
judgment and amended judgment in this case,8 that he waived any right to challenge the SEC’s
8 In fact, Mr. Musk was not represented by counsel at the time of the amended
judgment.
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subsequent abuse of the settlement. The Commission misplaces reliance on S.E.C v. Romeril, 15
F.4th 166 (2d Cir. 2021), which created a deep intra-circuit split and is the subject of a currently
pending petition for certiorari. But Crosby v. Bradstreet Co., 312 F.2d 483, in which the Second
Circuit vacated a consent decree on First Amendment grounds, remains the controlling law in
this Circuit. See In re Zarnel, 619 F.3d 156, 168 (2d Cir. 2010) (law of the circuit rule). In
with the power of a court of the United States to enjoin publication of information about a
person, without regard to truth, falsity, or defamatory character of that information. Such
an injunction, enforceable through the contempt power, constitutes a prior restraint by the
United States against the publication of facts which the community has a right to know
and which [plaintiff] had and has the right to publish. The court was without power to
make such an order; that the parties may have agreed to it is immaterial.
Notwithstanding, Mr. Romeril has asked the Supreme Court to resolve this split, correctly
explaining that there is little more offensive to the First Amendment than a content-based
lifetime ban on wholly truthful speech.9 Romeril, 15 F.4th 166, petition for cert. filed, (U.S. Mar.
23, 2022) (No. 21-1284) (collecting cases holding courts lack power to enforce prior restraints
and content and viewpoint-based speech restrictions as settlement conditions, even when entered
with consent). Further, the broad swath of speech subject to pre-approval, and the SEC’s
continuing and harassing investigation of Mr. Musk’s compliance with its prior restraint, raise
The First Amendment requires that agencies proceed with caution when constitutional
rights are at stake, not seek to pursue any and all novel theories that broaden their authority at the
9 See generally Ex. E to Mot. The intermittent nature of the SEC’s harassment
underscores the judgment’s chilling effect because it is impossible to know ex ante what tweets
will raise the Commission’s ire. Even the SEC seems unsure of what tweets require
preclearance, leaving only two conclusions: the consent decree is unduly vague or the agency is
pursuing its investigation in bad faith.
8
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cost of individual freedom. Compare Eminem, “Without Me” (2002) (“The [SEC] won’t let me
be or let me be me so let me see / They tried to shut me down . . .”) with Citadel Broad. Co.,
Mem. Op. and Order, 17 F.C.C. Rcd 483 (2002) (rescinding penalty against radio station for
playing Eminem song and noting “the First Amendment is a critical constitutional limitation that
Commission concedes that a wrongful act may create economic duress. Resp. at 14. See Krantz
v. BT Visual Images, L.L.C., 89 Cal. App. 4th 164, 176 (2001), as modified May 22, 2001
(“Impermissible threats include bad faith threatened use of civil process.”). And the
Commission does not even seek to defend its initial prosecution of Mr. Musk for his truthful
another party’s economic coercion.” In re Consol. Pretrial Proc. in Air W. Sec. Litig., 436 F.
Supp. 1281, 1290 (N.D. Cal. 1977). While settlements undoubtedly offer consideration to both
parties, like all contracts, that is no answer to a claim of coercion. “[A] reasonably prudent
person subject to [a wrongful] act may have no reasonable alternative but to succumb when the
only other alternative is bankruptcy or financial ruin.” Rich & Whillock, Inc. v. Ashton Dev.,
Inc., 157 Cal. App. 3d 1154, 1159 (Ct. App. 1984). And that the consent included a clause
regarding its voluntary nature does not absolve the SEC of any wrongful conduct. See In re
power to justify another investigation that is patently seeking evidence of compliance with the
9
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consent decree. Resp. at 16; supra at 3–4. But the general investigative authority of the SEC
does nothing to inform the Court about whether the consent decree is workable.
For example, the SEC has repeatedly demanded access to documents that are attorney-
client communications or attorney work product. See, e.g., Musk Subpoena (demanding
production of “Documents related in any way to submission of the 12:17 tweet and/or the 12:23
tweet to Tesla’s General Counsel or Securities Counsel, or any counsel acting in either capacity
. . . .”). While Tesla and Mr. Musk have properly rebuked such efforts, the SEC has not relented
and has repeatedly taken the position that communications and work product reflecting attorney
advice regarding pre-approval are not privileged. Accordingly, as structured, compliance with
the consent decree cannot be confirmed without testing the outer bounds of attorney-client
privilege and the attendant constitutional concerns. See also generally Mot. at 16–20.
D. The SEC Confuses What Is Required By The Consent Decree And What The
Securities Laws Mandate.
The SEC takes the position that it may investigate any of Mr. Musk’s tweets so long as he
tweets about Tesla, regardless of whether the consent decree is vacated. Resp. at 17. As
described above, the SEC misapprehends what disclosure controls and procedures Rule 13a-15
requires. See supra at 4–6. Moreover, if the SEC is correct that Rule 13a-15 requires procedures
identical to the amended judgment, it is difficult to understand why the amended judgment
IV. CONCLUSION
Mr. Musk respectfully requests the Court quash the Challenged Requests and terminate
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CERTIFICATE OF SERVICE
I hereby certify that I caused the foregoing Motion to be filed with the Court’s CM/ECF
system this 29th day of March, 2022, thereby causing it to be served on all counsel of record.
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